Jacqueline Butler did not receive a promotion from the Texas law firm where she worked, and she suspected that her race had something to do with it.
In July 2001, she filed complaints with the Texas human rights commission and the federal Equal Employment Opportunity Commission. The EEOC notified the employer, who responded a month later. The following spring, the EEOC informed Butler that she had the right to sue the employer, which she promptly did.
In turn, the employer made a claim with the company that provided its Employment Practices Liability insurance. Four weeks later, the insurance company denied the claim; the employer had no choice but to pay for its own legal defense and any potential settlement. In 2006, the employer sued the insurance company for the costs of its defense, but a federal court in 2007 upheld the claim denial.
Why did the employer’s insurance not pay for a discrimination claim? Because the employer took too long to submit it.
A typical policy requires the insured to give the insurer notice of any claims made against it “as soon as practicable.” In the Texas case, the policy went further and required written notice to the insurer “as soon as practicable and in no event later than sixty (60) days after such Claim was first made.”
The insurer maintained that Butler made her claim in July 2001, when she filed complaints with authorities. It pointed to the policy’s definition of a “claim” as “any judicial, administrative or other proceeding against any Insured for any Employment Practices Wrongful Act,” and concluded that the administrative complaints triggered the notice requirement.
The employer argued that, since it notified the insurer within 60 days of receiving notice of the lawsuit, it had complied with the policy’s conditions. However, the court agreed with the insurer.
Insurance companies do not include notice deadlines simply to avoid paying claims. The sooner they learn about events that may involve coverage, the better they can investigate and prepare a defense. As time passes, witnesses’ memories fade, witnesses may move, and documents such as memos and e-mails can be lost.
Claimants who have been kept waiting may become less willing to negotiate a settlement, so even without a fixed 60-day deadline an insurer may deny coverage when notice is not prompt.
Courts have not developed a single standard for what is “prompt” notice, but they normally consider three factors: the length of the delay, the reasons for the delay, and how the delay affects the insurer’s ability to handle the claim. Sometimes a late notice is excused if the insured reasonably believed it was not liable, but that defense is weaker once an employee has filed official complaints with authorities.
The safest course for employers is to notify their insurance companies or agents as soon as they become aware of any employee complaints to outside authorities. Even if the employer believes the charges are groundless, it should put the insurer on notice.
For help understanding specific coverages and policy terms, see Employment Practices Liability Insurance (EPLI) with E&O.
Your broker can also assist with documentation and reporting processes such as Custom Insurance Reporting.
If you need assistance, talk to an agent before a claim arises so you understand your policy's notice requirements and reporting procedures.
Frequently Asked Questions
When should I tell my insurer about an employee complaint?
Notify your insurer or agent as soon as you become aware of a complaint to ensure they can investigate and protect coverage.
What does “prompt notice” mean?
There is no single definition; courts look at the delay length, the reasons for delay, and whether the insurer was prejudiced by the delay.
Can an insurer deny coverage for late notice?
Yes—if the policy requires timely notice and the delay harms the insurer’s ability to defend or investigate, coverage can be denied.
How can I reduce the risk of a denial for late notice?
Establish internal reporting procedures, keep thorough records, and notify your insurer or agent immediately when a complaint is made.